Mar

18

I haven't read The Big Short, but after seeing the Lewis interview on 60 Minutes it's clear to me the book is quite illogical and contradictory. Somehow that makes it like Gladwell's, the book that the media loves, and will doubtless be the most popular. See the good paragraph posted below from an amateur Amazon reviewer.

As the Chair will testify about the nature and culture of AIG, the most ludicrous claim of all is that innocent, naive AIG was forced or tricked into writing $20 billion of credit default swaps by Goldman Sachs.

What are these points Lewis wanted to make? I suppose the major tension of the book is the teeter-tottering between the greed/evil genius of the major Wall Street firms (on one hand), and then the utter stupidity and incompetence of Wall Street (on the other). It is a difficult balance to strike, and one reason it is difficult is because, well, one can not have it both ways. Lewis can not claim, as he astonishingly and explicitly does, that Goldman Sachs made AIG write credit default swaps on the subprime mortgage industry, guaranteeing AIG's demise and Goldman Sachs flourishing, but then on the other hand claim that the firms had no idea what they were doing, and were completely shell-shocked by what happened to their CDO's (the collateralized debt obligation instruments which served as the toxic assets you hear so much about). This inconsistency permeates the book, and tonight on 60 Minutes I heard Lewis repeat what his major thesis is: Wall Street did not know what they were doing. This is the correct thesis. But it is wholly imcompatible with the obscene Goldman Sachs conspiracy movement that has taken over the Oliver Stone mainframe of our society. Even a Michael Lewis fan like myself was taken aback by the audacity of this oft-repeated contradiction.

Kim Zussman comments:

The better story is not the book but the author. Lewis, a Princeton/LSE grad, had a first career as a successful bond salesman at Solomon. He left finance to become a more successful author, colorizing Wall St villains and others.

"Be the house"

Nick White comments:

I know Mr. Lewis isn't terribly popular 'round here (though I enjoy his writing a great deal - pinch of salt or otherwise)…but I think Kim nailed it when he observed, "be the house". Full marks to Lewis for parlaying his edge. What's more, he's hardly ever been bashful about his motivations or disposition in the industry.

By his own admission, (see excerpt from business week interview below) he seeks to illustrate the issues through characters he (and us) can grab hold of. Sure, it sensationalises the story a bit - but it makes the complexity of all this a bit easier for those who aren't familiar with all the personalities, actors, products and institutions. The only way vast swathes of the non-professional population will understand this mess is through exaggeration, analogy and over-simplification. Hell, even most of those within the industry will probably only understand it this way.

He's also been great in giving credit to people who did the real homework and who have the nitty gritty facts and figures on this crisis– girls like Anna Katherine Barnett from Harvard (see this article and link to her paper there). Maybe it's just me defending the old school tie, but I've been long Mike Lewis for many years and will continue to be. Of course, I've never met him, so I simply take him at face value as an author. Others here may know him from a different angle. To me, he's an interesting and engaging social commentator and, like the rest of us here, can only put his pants on one leg at a time– none of us are perfect.

I, for one, am really looking forward to reading his book. Will surely be better than Paulson's and a nice perspective change from Andrew Ross Sorkin's.
Interview Excerpt:

SCHATZKER: You note early on in the book that John Paulson made more money than anyone had ever made so quickly on Wall Street. So why not make him more a part of this story?

LEWIS: I spent time with him. And he was very friendly. I could have made him part of the story very easily. But I had a purpose for this story. And the purpose was I wanted to explain to the reader what on earth had happened. And to do that, it helped that the characters themselves had to learn about these markets, that they didn't understand these markets to begin with.

So the reader could learn with them.

John Paulson happened to be oddly positioned inside the financial markets in that he was one of the few people who made his living shorting bonds and looking for bonds to short. His motives were, to me, less interesting. He's much more a purely economic animal. And so he didn't have a great distance to travel to get to the trade. And in addition I'm writing a story. And the story is driven by these characters. And it's got to be true. I can't make it up. I don't want to exaggerate what this thing means to a character.

The people who I was interested in were the people who had laid it all on the line, where they started out thinking, "A nice little trade," and they'd end up, essentially, that if this didn't work out, their careers were over. And Paulson had very cleverly but, from the character, the logical point of view, less interestingly structured his financial life so that he was going to win either way.

When he went to investors and said, "Give me your money so I can short the subprime mortgage bond market," he didn't say this is a bet we want to make because we're all going to get rich. He said your whole portfolio is premised on this not happening, this catastrophe not happening. Give me a tiny bit of your money and put it in this as an insurance policy. And if it works out, it will be a hedge. And if it doesn't work out, the rest of your portfolio is fine.

So there wasn't a lot at stake there. He made a lot of money when it worked out. But he wasn't set up to be in a lot of trouble if it failed. And I was particularly interested in the people who were set up to be in a lot of trouble if it failed.